Despite tightened foreign investment regulations, foreign interest in Australia’s healthcare sector has increased, resulting in new concerns for the Foreign Investment Review Board.
Australia has a flexible and robust foreign investment regime that can adapt to perceived threats to national security arising from foreign investors acquiring Australian critical infrastructure or other businesses that hold or control sensitive personal or business data. Other jurisdictions, such as the United States and the United Kingdom, are updating their foreign investment regulations in an attempt to balance the importance of foreign investment to drive economic growth, productivity, employment and innovation against growing concerns about national security threats posed by foreign entities owning critical infrastructure or technology assets.
In its recently published 2017-18 Annual Report, Australia’s Foreign Investment Review Board (FIRB) noted these developments overseas and that the Australian Government has continued to work with counterpart overseas agencies in respect of national security issues. Further, the Annual Report noted that FIRB continually examines ways to streamline and strengthen the foreign investment review process.
Australia has long been considered an attractive jurisdiction for foreign direct investment, and has benefitted from this status. Mr David Irvine AO, the Chair of FIRB, acknowledged this in a 2018 speech, stating that Australia has “always relied on foreign investment to fill the gap between domestic savings and investment”, supporting the growth of the Australian economy “into the success that it is today”.
The FIRB 2017-18 Annual Report noted that a total of 1,024 business applications worth $15.6 billion were approved by FIRB in the 2017-18 financial year, being $17 billion less than in the 2016-17 financial year. FIRB cited this decrease in approvals as being due primarily to a decline in the number of “large transactions”, such as the selling of major energy and infrastructure assets.
Although investment in Australia’s resources sector has declined, FIRB’s 2017-18 Annual Report recorded a 'significant increase' in investment applications and approvals in the services sector. In particular, the healthcare sector has experienced a boom in foreign direct investment interest, evidenced by a $3.7 billion year-on-year increase of approved foreign investment in healthcare assets.
This increased interest in the healthcare and other services sectors raises issues concerning the control of sensitive data. Major players in these sectors are increasingly housing private and sensitive data that is personal to members of the community, and therefore requires adequate protection. Consequently, this change in foreign investment trends has brought emerging concerns for FIRB, particularly from a national interest perspective.
Flexibility is central to the Foreign Acquisitions and Takeovers Act 1975 (Cth), as the Treasurer can reject proposals to FIRB that are found to be contrary to the national interest, or can impose conditions on an approval to address the relevant national interest concerns.
In his address to the International CEO Forum in May 2018, Mr David Irvine AO confirmed that the “security of data is a growing area of sensitivity” and noted that an increase in investment in the healthcare sector would put pressure on FIRB to “promote the protection of the private or personal data of Australian citizens”. His comments indicate that FIRB will place more significant scrutiny on proposed investments in the healthcare sector and other data-heavy sectors moving forward when screening applications against the national interest test.
One proposed acquisition in the healthcare sector that recently received media attention was the $2 billion takeover bid for ASX-listed health giant Healius Ltd (previously known as Primary Health Care), Australia’s largest network of medical centres and pathology clinics, by China’s Jangho Group. As reported by the Australian Financial Review on 14 January 2019, the proposed takeover fell within the scope of transactions that FIRB has flagged as being a national interest concern. Although Healius Ltd ultimately rejected the bid, proposed transactions such as this raise the expectation that FIRB will carefully examine transactions that deal with critical infrastructure and data, and will potentially impose strict conditions as a prerequisite for approval.
This expectation was reflected in FIRB’s assessment of the acquisition of I-MED Radiology Network, Australia’s largest diagnostic imaging provider, in 2018 by European private equity firm Permira for $1.25 billion. In that assessment, FIRB considered how Australians’ personal data would be safeguarded and FIRB approved the I-MED Radiology sale subject to conditions with respect to access of personal health data and where that data is stored.
Moving forward, it will be interesting to see whether FIRB imposes similar conditions in other sectors that hold sensitive data, such as the financial services and insurance industries.
As the protection of sensitive data and critical infrastructure is a key priority for FIRB and other regulatory bodies (including Australia’s Centre for Critical Infrastructure), foreign investors should be aware that any proposed acquisitions in Australia’s services sector, and in particular the healthcare sector, will likely be subject to more significant scrutiny. Importantly, investors should understand that FIRB may impose strict conditions when granting its approval of acquisitions of entities that hold sensitive data.